Utilities, which have behaved similarly to bonds, had outperformed in the first half of 2016 as investors shifted into value stocks, sought yield-generating assets and dove into safer bets amid a volatile environment. Moreover, dividend-paying stocks like Utilities gained traction on diminished expectations for a Federal Reserve rate hike this year, further fueling the rush toward higher yielding assets.
However, with economic data improving, a number of market observers believe the Fed will have room to raise interest rates sometime before the end of the year, which has diminished demand for bonds and the utilities sector.
“With central banks turning marginally less dovish and with global nominal growth firming, the low volatility bubble has been deflating,” Dubravko Lakos-Bujas, a US equity strategist at JPMorgan, told the Financial Times, referring to sectors like utilities that typically experience lower volatility than the broader market.
For more information on the utilities sector, visit our utilities category.